Amidst the global impact of the COVID-19 pandemic, Bangladesh’s stock market witnessed a downturn, leading to the closure of various enterprises, both big and small. As a result, several companies failed to distribute dividends to their investors. Responding to this economic challenge, the Bangladesh Securities and Exchange Commission (BSEC) issued directives on September 1, 2020, to categorize companies facing profit distribution difficulties. According to the directive, if a company fails to announce or distribute dividends within the fiscal year, its category will be altered.

However, this provision grants affected companies only a brief respite, lasting a few days. Those companies unable to fulfill their dividend commitments by February 28 will undergo a categorical change as per the BSEC’s directive, impacting their shareholder dynamics significantly. Notably, companies engaging in trading activities on the Dhaka Stock Exchange (DSE) under ‘A’ and ‘B’ categories, despite not distributing dividends, currently remain outside the ‘Z’ category, comprising companies that have failed to pay dividends.

As of now, there are 49 such companies still operating within the ‘A’ and ‘B’ categories on the DSE, set to be reclassified as ‘Z’ category entities after February 28. The regulatory authority, BSEC, has been closely monitoring companies with weak stock shares, subjecting them to continuous surveillance. Brokering firms receiving sell (offer) and buy (demand) orders are currently under scrutiny by the regulatory body.

Recently, Dhaka Stock Exchange (DSE) has flagged concerns over Khan Brothers’ share price fluctuations and the closure of Khulna Printing’s factory. Simultaneously, 39 scrutinized companies, including Khan Brothers, Khulna Printing, Central Pharmaceuticals, Intech Limited, Keya Cosmetics, Active Fine, AFC Agro Biotech Limited, Alhaj Textile, Alltex Industries, Anlima Yarn Dyeing, Aramit Cement, Atlas Bangladesh, Aziz Pipes, Bangas, Bangladesh Building Systems (BBS), BD Thai Aluminum, Dhaka Dyeing, Delta Spinning, Far Chemicals, FAS Finance, Global Heavy Chemicals, Indo-Bangla Pharmaceuticals, International Leasing, Metro Spinning, Miracle Industries, National Feed Mill, National Tea, National Tubes, Olympic Accessories, Olympic Industries, Peninsula Chittagong, Prime Textile Spinning Mills, Regent Textile, Safko Spinning, Sonargaon Textiles, Standard Ceramic, Union Capital, Western Marine Shipyard, and Zahintex Industries Limited, have been reported to the Bangladesh Securities and Exchange Commission (BSEC) for their weak share performances.

These companies are under scrutiny for engaging in transactions in the ‘B’ category despite not paying dividends. The BSEC’s surveillance aims to maintain transparency in the stock market and ensure compliance with regulations. The list of companies reported for weak share performance includes a diverse range of industries, from textiles and pharmaceuticals to finance and manufacturing. This move by the regulatory authority reflects its commitment to closely monitor companies facing challenges in the stock market.

In addition, ten companies are engaging in transactions in the ‘A’ category without distributing dividends. These companies include Kattali Textile, Makson Spinning, Malek Spinning, New Line Clothings, Renwick Jajneswar, Ring Shine Textile, Runner Automobiles PLC, Saif Powertec, Saiham Cotton Mills, and Saiham Textile Mills Limited.

As for the ‘Z’ category, according to the BSEC’s directive issued on September 1, 2020, if a company fails to provide cash dividends for two consecutive years or does not hold Annual General Meetings (AGM) within the specified timeframe, it will be transferred to the ‘Z’ group with the commission’s approval. Furthermore, if a company’s production or operations remain suspended for six months or more, or if the net cash flow from operating activities is continuously negative, or if the company’s net asset value remains higher than the paid-up capital, it will also be transferred to the ‘Z’ category.

Additionally, companies that are unable to hold AGMs due to legal reasons or face disruptions due to force majeure events will not be reclassified to the ‘Z’ category if their production remains suspended for more than six months. Moreover, the Securities Act prohibits the stock exchange from unilaterally transferring any listed company to the ‘Z’ category without the BSEC’s approval. The stock exchange will regularly review compliance with these regulations, and any company found to be non-compliant may be transferred to the ‘Z’ category or subjected to coordination with the BSEC.

On Monday (February 5), BSEC’s Executive Director and Spokesperson Mohammad Rezaul Karim informed Orthosongbad that the opportunities previously granted to companies through notifications in response to the pandemic have been revoked. Consequently, companies will now adhere to listing regulations, and any advancements or downgrades in share categories will be by the existing rules from February 28. If any weak companies are being targeted for market manipulation, the relevant department of the regulatory body is actively addressing such cases.

Before this change, if a company failed to declare dividends, its shares would be reclassified to the ‘Z’ category the next day. Similarly, if announced dividends were not sent to AGM within a month, the same decision would be taken. The regulatory measures aim to maintain the integrity of the stock market and ensure transparency in the handling of companies facing financial challenges.

According to sources, BSEC has recently issued new directives, rescinding the previous instructions issued before November 30 of the last year. The latest notification, signed by BSEC Chairman Prof. Shibli Rubayat-Ul-Islam, addresses the reclassification of companies into the ‘Z’ category.

The notification states that companies listed on the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) can now be immediately reclassified to the ‘Z’ category based on settlement or transaction regulations. Due to the BSEC’s order issued on September 1, 2020, certain companies were prevented from being transferred to the ‘Z’ category, and now, these companies are also eligible for reclassification.

The directive further mentions that companies already in the ‘Z’ category cannot engage in share trading, share transfers, or reclassification without BSEC approval. However, exemptions are provided for banks, insurance companies, and non-banking financial institutions (NBFIs), allowing their entrepreneurs or executives to participate in these activities. The new regulations are scheduled to come into effect on February 28, 2024.